Morning Gold Fix – July 21, 2010

FMX | Connect – www.fmxconnect.com - (Reported 7/21/2010)

The following is a summary of yesterday’s US gold activity and a recap of Asia & European markets overnight. It includes our proprietary options analytics and news stories from industry professionals.

Summary

Gold opened Tuesday’s trading at $1183.2 per 100 troy ounces, and proceeded to rebound from an 8 week low, eventually closing at 1191.7. It has continued its rally this morning with slight gains.

Disappointed Bulls

Yesterday’s activity was disappointing if you are a Gold bull. Here is why.

There was massive selling in Calls all the way up yesterday by funds and bullion Dealers. Translation: the funds are ”Trapped longs” and the bullion dealers know it. Technical traders understand this best. Essentially there are out-of-the-money futures and options spec longs who are running out of patience. Every rally will be met with selling by them. This does not mean we will not go up. It just means that it should be orderly, with a washout when whoever is buying is done. Yesterdays’ rally seemed to be a dollar weaker/ commodity stronger based impulse. So perhaps the inflation trade is stepping in here a little. For me, that means orderly movement in a rally as well, as opposed to deflationary crisis. The key is open interest. If OI decreases in the rally, I would not buy strength.

In fact, I’d go so far to say that with trapped longs and expiry approaching, this market will be between 1190 and 1210, 7 days from now. Book that bet.

Fed Fights Deflation by Buying Gold

We read an interview yesterday with Lee Quaintance  co-founder of QB Asset Management. He is a high yield veteran of the markets. He laid out a case for $5,000.00 gold which we thought made sense. Essentially his point was there is too LITTLE money chasing too much debt. His solution was to have the Fed buy  Gold and reduce credit. Buying gold fights deflation by printing money, and shrinking the debt prevents paper asset bubbles. Interview here. Anyway it will never happen, the government will tax gold at 70% first or confiscate it before it announces $5,000 is the fixed price. But it is nice to hear someone making a somewhat legit case for higher gold.

-Elizabeth Thawne

For Market Prices Click Here

Tuesday Options Report

End of Day Straddle Runs

FMX Morning Newswire

Bloomberg (Reported 7/21/2010)

“Gold may gain for a second day in London on speculation the metal’s price decline will boost physical demand and as investors buy commodities. Bullion rebounded yesterday after earlier dropping to an eight-week low of $1,175.55 an ounce, while holdings in the world’s biggest gold-backed exchange-traded fund fell 6.08 metric tons.

The metal is trading 5.5 percent below a record $1,265.30 set June 21. European equities gained and the dollar rose against the euro before Federal Reserve Chairman Ben S. Bernanke speaks today on the economy.” Gold May Gain on Price Decline, Increased Commodities Demand

NS Futures (Reported 7/21/2010)

“While portions of the bull camp are suggesting that this morning’s gains are the result of revived stress test results anxiety, it is also possible that favorable global equity market action is providing the lift to gold. Others might suggest that economic uncertainty remains high, as the BOE meeting minutes overnight acknowledged renewed slowing pressures since June and also hinted at the prospect of more action if it is what’s needed.

Asian equity markets finished slightly higher overnight, while stock indices in Europe traded decisively higher by more than +1.25% in early morning trade. US equity indices were also in positive territory during the initial Wednesday morning action aided by positive earnings from Apple.” Daily Metals Commentary 

Reuters (Reported 7/21/2010)

“Gold firmed in Europe on Wednesday after a weak Portuguese debt auction raised concerns over the fragility of the euro zone banking sector, knocking the euro, but gains were limited by softer investment demand. A 6.1-tonne fall in holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, on Tuesday, their biggest one-day decline since December, indicates waning investor confidence in the metal, analysts said.

Spot gold was bid at $1,195.70 an ounce at 1117 GMT, against $1,191.40 late in New York on Tuesday. U.S. gold futures for August delivery rose $3.70 an ounce to $1,195.40.” Gold rises after Portuguese debt auction

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